<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

(Mark One)
   [X]          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended September 30, 2004

                                       or

   [ ]          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                        For the transition period from to

                         Commission File Number 0-12950

                          ALLIANCE PHARMACEUTICAL CORP.
             (Exact name of Registrant as specified in its charter)

New York                                               14-1644018
--------------------------------------------           -------------------------
(State or other jurisdiction                           (I.R.S. Employer
of incorporation or organization)                      Identification Number)

6175 Lusk Boulevard
San Diego, California                                  92121
--------------------------------------------           -------------------------
(Address of principal                                  Zip Code
executive offices)

Registrant's telephone number,
including area code:                                   (858) 410-5200
                                                       -------------------------

Indicate by a check whether the registrant (1) has filed all reports required to
be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days.

                      Yes [X]                 No [ ]

As of October 31, 2004, Registrant had 31,922,532 shares of its Common Stock,
$.01 par value, outstanding.





<PAGE>

ALLIANCE PHARMACEUTICAL CORP.
-----------------------------

INDEX
-----

                                                                        Page No.
                                                                        --------

PART I - FINANCIAL INFORMATION

Item 1.    Financial Statements

           Condensed Consolidated Balance Sheet (unaudited)                 3

           Condensed Consolidated Statements of Operations (unaudited)      4

           Condensed Consolidated Statements of Cash Flows (unaudited)      5

           Notes to Unaudited Condensed Consolidated Financial Statements   6

Item 2.    Management's Discussion and Analysis or
           Plan of Operation                                               14

Item 3.    Controls And Procedures                                         18

PART II - OTHER INFORMATION

Item 1.    Legal Proceedings                                               19

Item 2.    Changes in Securities                                           20

Item 3.    Defaults Upon Senior Securities                                 20

Item 4.    Submission Of Matters To a Vote of Security Holders             20

Item 5.    Other Information                                               20

Item 6.    Exhibits and Reports on Form 8-K                                21

                                       2





<PAGE>
<TABLE>

PART I FINANCIAL INFORMATION:
ITEM 1.  FINANCIAL STATEMENTS

ALLIANCE PHARMACEUTICAL CORP.
-----------------------------
CONDENSED CONSOLIDATED BALANCE SHEET
-------------------------------------------------------------------------------------------------

                                                                                SEPTEMBER 30,
                                                                                     2004
                                                                           ----------------------
ASSETS                                                                           (UNAUDITED)
------

<S>                                                                        <C>
CURRENT ASSETS:
    Cash and cash equivalents                                              $           7,419,000
    Other current assets                                                                 167,000
                                                                           ----------------------
              Total current assets                                                     7,586,000

PROPERTY, PLANT AND EQUIPMENT - NET                                                       44,000
RESTRICTED CASH                                                                        1,000,000
                                                                           ----------------------
                                                                           $           8,630,000
                                                                           ======================

LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------

CURRENT LIABILITIES:
    Accounts payable                                                       $           1,397,000
    Accrued expenses                                                                   1,202,000
    Senior notes payable                                                              11,202,000
                                                                           ----------------------
              Total current liabilities                                               13,801,000

LONG-TERM DEBT                                                                           420,000
OTHER LIABILITIES                                                                      1,250,000

STOCKHOLDERS' DEFICIT:
    Preferred stock - $.01 par value; 5,000,000 shares authorized; 793,750
        shares of Series F issued and outstanding at
        September 30, 2004 and June 30, 2004                                              8,000
    Common stock - $.01 par value; 125,000,000 shares authorized;
        29,422,532 and 59,968,955 shares issued and outstanding at
        September 30, 2004 and June 30, 2004, respectively                               294,000
    Additional paid-in capital                                                       474,884,000
    Accumulated deficit                                                             (482,027,000)
                                                                           ----------------------
              Total stockholders' deficit                                             (6,841,000)
                                                                           ----------------------
                                                                           $           8,630,000
                                                                           ======================
</TABLE>

SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                                      3





<PAGE>
<TABLE>

ALLIANCE PHARMACEUTICAL CORP.
-----------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------------------------------

                                                                       THREE MONTHS ENDED
                                                                           SEPTEMBER 30,
                                                                  2004                    2003
                                                           ----------------------  ---------------------
                                                                            (UNAUDITED)
<S>                                                        <C>                     <C>
REVENUES:
     License, research and royalty revenues                $              47,000   $             17,000

OPERATING EXPENSES:
     Research and development                                            960,000                175,000
     General and administrative                                          637,000                127,000
                                                           ----------------------  ---------------------
                                                                       1,597,000                302,000
                                                           ----------------------  ---------------------
LOSS FROM OPERATIONS                                                  (1,550,000)              (285,000)

INVESTMENT INCOME                                                         31,000                  4,000
OTHER INCOME                                                                   -                 72,000
INTEREST EXPENSE                                                      (2,249,000)               (78,000)
GAIN ON DISPOSITION OF ASSET                                             143,000              1,899,000
                                                           ----------------------  ---------------------
NET INCOME (LOSS)                                          $          (3,625,000)  $          1,612,000
                                                           ======================  =====================

NET INCOME (LOSS) PER COMMON SHARE, BASIC                  $               (0.06)  $               0.06
                                                           ======================  =====================
NET INCOME (LOSS) PER COMMON SHARE, DILUTED                $               (0.06)  $               0.05
                                                           ======================  =====================

WEIGHTED AVERAGE SHARES OUTSTANDING, BASIC                            57,977,000             27,977,000
                                                           ======================  =====================
WEIGHTED AVERAGE SHARES OUTSTANDING, DILUTED                          57,977,000             34,434,000
                                                           ======================  =====================
</TABLE>

SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                                      4





<PAGE>
<TABLE>

ALLIANCE PHARMACEUTICAL CORP.
-----------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------------------------------------------------------------------------------------------------------------
                                                                                       THREE MONTHS ENDED
                                                                                           SEPTEMBER 30,
                                                                                    2004                  2003
                                                                              -----------------     -----------------
                                                                                           (UNAUDITED)
<S>                                                                           <C>                   <C>
OPERATING ACTIVITIES:
     Net income (loss)                                                        $     (3,625,000)     $      1,612,000
     Adjustments to reconcile net income (loss) to net cash used in operations:
        Depreciation and amortization                                                    2,000                     -
        Compensatory stock options                                                       2,000                     -
        Beneficial conversion expense                                                2,238,000                     -
        Gain on disposition of asset                                                  (143,000)           (1,899,000)
        Changes in operating assets and liabilities:
           Restricted cash and other assets                                            (19,000)              529,000
           Accounts payable and accrued expenses and other                             446,000              (895,000)
                                                                              -----------------     -----------------
Net cash used in operating activities                                               (1,099,000)             (653,000)
                                                                              -----------------     -----------------

INVESTING ACTIVITIES:
     Property and equipment - net                                                       (1,000)                    -
     Proceeds from disposition of asset                                                 90,000               262,000
                                                                              -----------------     -----------------
Net cash provided by investing activities                                               89,000               262,000
                                                                              -----------------     -----------------

FINANCING ACTIVITIES:
     Issuance of common stock                                                                -                 1,000
                                                                              -----------------     -----------------
Net cash provided by financing activities                                                    -                 1,000
                                                                              -----------------     -----------------

DECREASE IN CASH AND CASH EQUIVALENTS                                               (1,010,000)             (390,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                     8,429,000               763,000
                                                                              -----------------     -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                    $      7,419,000      $        373,000
                                                                              =================     =================

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
     Issuance of senior notes for common stock                                $     11,191,000      $              -

</TABLE>

SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                                           5





<PAGE>

ALLIANCE PHARMACEUTICAL CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION
------------

         Alliance Pharmaceutical Corp. and its subsidiaries (collectively, the
"Company", "Alliance", "we" or "us") are engaged in identifying, designing, and
developing novel medical products. Currently, the Company is focused on
developing its lead product, OXYGENT(TM), an intravascular oxygen carrier
designed to reduce the need for donor blood in surgical and other patients at
risk of acute tissue hypoxia (oxygen deficiency). In addition, Alliance is
developing intellectual property and know-how for potential products to treat
immune disorders, including autoimmune disease, cancer and infectious disease.

LIQUIDITY AND BASIS OF PRESENTATION
-----------------------------------

         The accompanying unaudited financial statements are prepared assuming
the Company is a going concern. The Company believes it has sufficient working
capital to fund its operations for the next 15 months. However, as discussed in
Note 4, in June 2004, the Company completed a private placement of its common
stock with net proceeds to the Company of approximately $10 million (the "June
Private Placement"). In September 2004, the terms of the June Private Placement
were rescinded by mutual agreement of the Company and investors holding
approximately $10.7 million of the original $11 million invested by the various
investors in the June Private Placement. Concurrently, the investors who elected
to rescind the June Private Placement were issued senior convertible promissory
notes in like investment amounts (the "Senior Notes"). Due to certain
restrictive covenants, including, without limitation, a covenant that the
Company maintain at least $5.5 million in cash or cash equivalents on hand at
all times while the Senior Notes are outstanding, the Senior Notes may become
current prior to June 30, 2005. If this were to occur, the Company would have to
raise additional funds to repay the Senior Notes or renegotiate their terms. The
accompanying unaudited financial statements do not include the adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amount and classification of liabilities that may result from the
outcome of this uncertainty.

PRINCIPLES OF CONSOLIDATION
---------------------------

         The consolidated financial statements include the accounts of Alliance
Pharmaceutical Corp., the accounts of its wholly owned subsidiaries Molecular
Biosystems, Inc. ("MBI"), Astral, Inc. ("Astral"), MDV Technologies, Inc.,
Alliance Pharmaceutical GmbH, its majority-owned subsidiary Talco
Pharmaceutical, Inc., and its majority-owned subsidiary PFC Therapeutics, LLC
("PFC Therapeutics") from June 18, 2003, when Alliance acquired Baxter
Healthcare Corporation's ("Baxter") ownership interest. The Company's
subsidiaries have minimal operations and all significant intercompany accounts
and transactions have been eliminated.

INTERIM UNAUDITED CONDENSED FINANCIAL STATEMENTS
------------------------------------------------

         The condensed consolidated balance sheet as of September 30, 2004, the
condensed consolidated statements of operations for the three months ended
September 30, 2004 and 2003, and the condensed consolidated statements of cash
flows for the three months ended September 30, 2004 and 2003 are unaudited. In
the opinion of management, such unaudited financial statements include all
adjustments, consisting only of normal recurring accruals, necessary for a fair
presentation of the results for the periods presented. Interim results are not
necessarily indicative of the results to be expected for the full year. The
financial statements should be read in conjunction with the Company's audited
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-KSB for the year ended June 30, 2004.

                                       6





<PAGE>

USE OF ESTIMATES
----------------

         The preparation of financial statements in conformity with accounting
principles generally accepted in the U.S. requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
disclosures made in the accompanying notes to the consolidated financial
statements. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS
-------------------------

         The Company considers instruments purchased with an original maturity
of three months or less to be cash equivalents.

CONCENTRATION OF CREDIT RISK
----------------------------

         Cash and cash equivalents are financial instruments that potentially
subject the Company to concentration of credit risk. The Company invests its
excess cash primarily in U.S. government securities and debt instruments of
financial institutions and corporations with strong credit ratings. The Company
has established guidelines relative to diversification and maturities to
maintain safety and liquidity. These guidelines are reviewed periodically and
modified to take advantage of trends in yields and interest rates.

REVENUE RECOGNITION
-------------------

         Revenue is generally recognized when all contractual obligations have
been satisfied and collection of the resulting receivable is reasonably assured.

         LICENSING AND ROYALTY REVENUES
         ------------------------------
         Licensing and royalty revenues for which no services are required to be
performed in the future are recognized immediately, if collectibility is
reasonably assured.

RESEARCH AND DEVELOPMENT EXPENSES
---------------------------------

         Research and development expenditures are charged to expense as
incurred. Research and development expenditures include the cost of salaries and
benefits for clinical, scientific, manufacturing, engineering and operations
personnel, payments to outside researchers for preclinical and clinical trials
and other product development work, payments related to facility lease and
utility expenses, depreciation and amortization, patent costs, as well as other
expenditures. In the three-month periods ended September 30, 2004 and 2003, the
Company incurred research and development expenses of $960,000 and $175,000,
respectively.

COMPUTATION OF EARNINGS PER COMMON SHARE
----------------------------------------

         Basic earnings (loss) per share was computed by dividing the net income
(loss) by the weighted average number of common shares outstanding during the
period. Diluted earnings (loss) per share for the three months ended September
30, 2004 and 2003 reflect the potential dilution that could occur if net income
was divided by the weighted average number of common shares, plus common shares
from the exercise of outstanding stock options and warrants and the conversion
of preferred stock where the effect of those securities is dilutive. All
potential dilutive common shares have been excluded from the calculation of
diluted loss per share for the three months ended September 30, 2004, as their
inclusion would be anti-dilutive. The computations for basic and diluted
earnings per share are as follows:

                                       7





<PAGE>
<TABLE>
                                                 INCOME/(LOSS)          SHARES           INCOME/(LOSS)
                                                  (NUMERATOR)        (DENOMINATOR)         PER SHARE
                                             -------------------   -----------------   -----------------
<S>                                          <C>                         <C>           <C>
Three months ended September 30, 2004
     Basic and diluted loss per share        $       (3,625,000)         57,977,000    $          (0.06)
                                             ===================   =================   =================

THREE MONTHS ENDED SEPTEMBER 30, 2003
Basic earnings per share:
     Net income                              $        1,612,000          27,977,000    $           0.06
Diluted earnings per share:
     Dilutive stock options and warrants                      -             131,000                   -
     Series F preferred stock                                 -             289,000                   -
     Convertible debentures                              78,000           6,037,000                   -
                                             -------------------   -----------------   -----------------
     Net income plus assumed conversions     $        1,690,000          34,434,000    $           0.05
                                             ===================   =================   =================
</TABLE>

ACCOUNTING FOR STOCK-BASED COMPENSATION
---------------------------------------

         The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation". The Company in its financial statements applies Accounting
Principles Board Opinion No. 25 and related interpretations in accounting for
its stock option plans, and accordingly, no compensation cost has been
recognized for stock options in the three-month periods ended September 30, 2004
or 2003. If the Company had elected to recognize compensation cost based on the
fair value of the options granted at grant date and amortized to expense over
their vesting period as prescribed by SFAS No. 123, the Company's net income
(loss) and net income (loss) per share would have been adjusted to the pro forma
amounts indicated below for the three months ended September 30:

<TABLE>

THREE MONTHS ENDED SEPTEMBER 30:                               2004                 2003
                                                       -------------------   ------------------
<S>                                                    <C>                   <C>
             Net income (loss)
                 As reported                           $       (3,625,000)   $       1,612,000
                 Fair value of stock-based
                      employee compensation                      (160,000)            (195,000)
                                                       -------------------   ------------------
                 Pro forma                             $       (3,785,000)   $       1,417,000
                                                       ===================   ==================
             Net income (loss) per share, basic
                 As reported                           $            (0.06)   $            0.06
                 Pro forma                             $            (0.06)   $            0.05
             Net income (loss) per share, diluted
                 As reported                           $            (0.06)   $            0.05
                 Pro forma                             $            (0.06)   $            0.04
</TABLE>

         The impact of outstanding non-vested stock options granted prior to
1996 has been excluded from the pro forma calculations; accordingly, the pro
forma adjustments for the three-month periods ended September 30, 2004 and 2003
are not indicative of future period pro forma adjustments if the calculation
reflected all applicable stock options. The fair value of options at date of
grant was estimated using the Black-Scholes option-pricing model with the
following assumptions for both periods, respectively: risk-free interest rate
range of 1.7% to 4.6% and 3.25% to 6.5%; dividend yield of 0% for both years;
volatility factor of 139% and 135%; and a weighted-average expected term of 7
years for both years. There were no options granted during the three-month
period ended September 30, 2004. The estimated weighted average fair value at
grant date for the options granted during the three-month period ended September
30, 2003 was $0.16.

                                       8





<PAGE>

COMPREHENSIVE INCOME (LOSS)
---------------------------

         SFAS No. 130, "Comprehensive Income" requires unrealized gains and
losses on the Company's available-for-sale securities to be included in
accumulated comprehensive income (loss). During the three-month periods ended
September 30, 2004 and 2003, the total comprehensive income (loss) was not
materially different than the net income (loss) as reported.

2.  PFC THERAPEUTICS, LLC

         In June 2003, Alliance acquired Baxter's 50% interest in PFC
Therapeutics in exchange for contingent payments to Baxter based on the future
commercial sales of OXYGENT and other products. The fee to Baxter is 2% of all
of Alliance's or PFC Therapeutics' future gross sales, if any, of the products,
with a maximum fee of $30 million. In accordance with FASB No. 141, BUSINESS
COMBINATIONS, the Company has not recorded the value of the potential
consideration to be issued to Baxter for Baxter's ownership interest in PFC
Therapeutics as the future payments are contingent on future commercial sales of
an undeveloped product.

         PFC Therapeutics has had no operating activity (except the purchase of
the prepaid royalty of $10 million from Alliance in 2000) since inception of the
joint venture.

         Also in June 2003, Alliance and certain of its creditors entered into
an agreement (the "Participation Agreement"), which, among other things, granted
each creditor an ownership interest in the OXYGENT Business (as defined in the
Participation Agreement). In April 2004, Alliance agreed to issue each of these
creditors a warrant to purchase a certain number of shares of Alliance's common
stock. In exchange for the issuance of the warrants, these creditors agreed to
assign all of their rights under the Participation Agreement to Alliance. The
fair value of the warrants issued as determined using Black-Scholes was $2.3
million as recorded in fiscal year 2004. The total ownership interest the
creditors assigned back to Alliance was 11.2% during fiscal year 2004.

         On April 5, 2004, PFC Therapeutics, and Nycomed Denmark ApS
("Nycomed"), a leading European pharmaceutical company, signed a collaboration
agreement for Nycomed to develop and commercialize OXYGENT in Europe (the
"Nycomed Agreement"). Under the terms of the agreement, Nycomed was to be
responsible for the remaining clinical and regulatory development, and future
marketing of OXYGENT within a broad European territory. The agreement also
included an option for Nycomed to acquire OXYGENT rights for China. On July 2,
2004, Nycomed notified Alliance that it was terminating the agreement effective
August 16, 2004. Therefore, the rights to OXYGENT in Europe and China have
reverted back to PFC Therapeutics, and the Company is actively looking for a new
partner or partners to develop and commercialize OXYGENT in both of these
regions

         On April 19, 2004, PFC Therapeutics and Il Yang Pharm. Co., Ltd. ("Il
Yang"), a leading South Korean pharmaceutical research and development and
marketing company, signed a licensing, development and marketing agreement
granting Il Yang exclusive rights to promote, market, distribute and sell
OXYGENT for any approved clinical use, including all future approved uses, in
South Korea. Under terms of the agreement, PFC Therapeutics will be initially
responsible for the commercial supply of OXYGENT to Il Yang and will receive a
royalty on OXYGENT sales following commercialization. Il Yang will also make
certain future payments on the completion of various regulatory milestones for
development in Europe and the U.S.

3.  SALE OF IMAGENT(R) ASSETS

         On June 18, 2003, Imcor Pharmaceutical Co. ("Imcor"), formerly known as
Photogen Technologies, Inc., acquired certain assets and assumed certain
liabilities from Alliance. The assets acquired by Imcor included all of
Alliance's assets related to designing, developing, manufacturing, marketing,
selling, licensing, supporting and maintaining its IMAGENT product, an

                                       9





<PAGE>

ultrasound contrast agent that was approved by the Federal Food & Drug
Administration ("FDA") for marketing in the U.S. in June 2002. The amount of
consideration was determined through arms-length negotiation. To the extent
obligations with certain creditors were completely settled, Alliance recorded a
gain from sale of assets of $10.6 million during the year ended June 30, 2003,
$15 million during the year ended June 30, 2004, and $143,000 for the three
months ended September 30, 2004 related to the disposition of this asset.

         For the three months ended September 30, 2004, Alliance recorded
$143,000 as a gain on the disposition of an asset as a result of Imcor funding
$90,000 of Alliance's obligations, and $53,000 related to creditor settlements
or Imcor's assumed obligations of Alliance. To date, Alliance has recorded $25.7
million as a gain on the disposition of an asset as a result of Imcor issuing
shares of its stock valued at $3.7 million to Alliance creditors, Imcor funding
$1.6 million of Alliance's obligations, and $20.4 million related to settlement
agreements or Imcor's assumed obligations of Alliance. The remaining required
cash payments by Imcor will not be applied against the corresponding liabilities
of Alliance until Alliance is legally released from the associated liabilities.
Alliance will record an additional gain on disposition of asset at the time that
Alliance is legally released from the liabilities. The balance owed by Imcor to
Alliance to settle remaining liabilities at September 30, 2004 was approximately
$320,000.

         In addition, subsequent to the closing and through 2010, Imcor is
obligated to pay Alliance further consideration in the form of an earn-out based
on IMAGENT revenue invoiced (subject to certain reductions).

         The amount of the earn-out will equal, for each year of the earn-out:
(i) 7.5% of IMAGENT revenue up to $20 million; (ii) 10% of IMAGENT revenue
between $20 million and $30 million; (iii) 15% of IMAGENT revenue between $30
million and $40 million; and (iv) 20% of IMAGENT revenue above $40 million. The
earn-out will be reduced by amounts Imcor must pay pursuant to a license
agreement with Schering Aktiengesellschaft ("Schering"), net of payments they
receive from Schering under the license, and amounts of any indemnification
claims Imcor has against Alliance. The earn-out is subject to three additional
offsets (which are to be applied in the manner described in the Asset Purchase
Agreement dated June 18, 2003 by and between Alliance and Imcor (the "Asset
Purchase Agreement")) that entitle Imcor to retain portions of the earn-out
otherwise payable to Alliance:

         o        Up to approximately $1.6 million for an earn-out reduction,
                  depending on the satisfaction of certain conditions;

         o        The amount of any payments not committed to at closing that
                  Imcor makes after the closing to Alliance's creditors plus up
                  to $1 million of litigation expenses for certain patent and
                  other litigation; and

         o        Between $4 million and $5 million, which is the principal and
                  accrued interest under Imcor's prior bridge loans to Alliance,
                  depending on the satisfaction of certain conditions.

         The detail of items comprising the gain on disposition of IMAGENT
assets for the three months ended September 30, 2004 and 2003 is calculated as
follows (in thousands):

<TABLE>

THREE MONTHS ENDED SEPTEMBER 30:                                            2004             2003
                                                                       -------------     ------------
<S>                                                                     <C>              <C>
Cash payments funded by Imcor for liabilities of Alliance               $        90      $       262
Assumption by Imcor of operating liabilities and other debt
  and settlements with vendors and creditors of Alliance                         53            1,637
                                                                       -------------     ------------
Gain on sale of assets of IMAGENT to Imcor                              $       143      $     1,899
                                                                       =============     ============
</TABLE>

                                       10





<PAGE>

4.  DEBT OBLIGATIONS

PFC NOTE
--------

         On November 20, 2003, PFC Therapeutics sold a Secured Convertible Note
in the principal amount of $500,000 (the "PFC Note") to an investor. The
investor also received a warrant to purchase a number of units of ownership
interests of PFC Therapeutics representing 10% of its issued and outstanding
units (determined on a fully-diluted basis on the date of exercise of the
warrant) at an exercise price of $0.01 per unit, at any time or from time to
time from January 31, 2004 to and including January 31, 2009. The principal
amount of the PFC Note was classified in the other liabilities section of the
Consolidated Balance Sheet at June 30, 2004. The Company had recorded interest
expense of $1 million and a beneficial conversion feature charge of $1 million
during fiscal year ended June 30, 2004 based on the valuation of the warrant
issued in connection with the PFC Note. In September 2004, the holder of the PFC
Note exchanged such warrant for 2,500,000 shares of common stock of the Company
and such promissory note for a Senior Note (described below) in the principal
amount of $500,000 payable directly by the Company. The principal plus interest
due on all of the Senior Notes is included in the current liabilities section of
the Unaudited Condensed Consolidated Balance Sheet at September 30, 2004.

JUNE PRIVATE PLACEMENT
----------------------

         In June 2004, the Company completed its June Private Placement, a
private placement of 31,427,137 shares of its common stock for aggregate gross
proceeds of approximately $11 million. Net proceeds from the transaction, after
issuance costs and placement fees, were approximately $10 million. In connection
with this transaction, the Company also issued five-year warrants to purchase an
additional 23,570,357 shares of its common stock at an exercise price of $0.50
per share. In addition, the Company issued warrants to the placement agent to
purchase 1,571,357 shares of its common stock. Pursuant to the terms of the
registration rights agreements entered into in connection with the June Private
Placement, the Company was required to pay a cash penalty if it failed to file
with the SEC a registration statement under the Securities Act of 1933, as
amended, covering the resale of all of the common stock purchased and the common
stock underlying the issued warrants, including the common stock underlying the
placement agent's warrants. The fair value of the warrants was estimated using
the Black-Scholes option pricing model with the following assumptions: no
dividend, risk-free interest rate of 3.4%, the contractual life of 5 years and
volatility of 139%. In accordance with Emerging Issues Task Force ("EITF") No.
00-19, "Accounting for Derivative Financial Instruments Indexed To and
Potentially Settled In a Company's Own Common Stock", the estimated fair value
in the amount of $7.9 million was recorded as a liability, with an offsetting
charge to additional paid-in capital at June 30, 2004. The warrant liability was
reclassified to additional paid-in capital as of September 30, 2004, the date of
effectiveness of the registration statement, which is the date the potential for
a cash penalty ceased.

         On July 2, 2004, Nycomed notified the Company that it was unilaterally
terminating the Nycomed Agreement effective August 16, 2004. Subsequently, a
dispute arose between the Company and some of its investors who participated in
the June Private Placement. After considering all of the facts and circumstances
relevant to the dispute, the Company's board of directors determined that it was
in the Company's and the Company's stockholders' best interests to offer, as a
settlement of the dispute, to rescind the June Private Placement.

         On September 24, 2004, investors holding 30,546,423 shares of common
stock and warrants to purchase 22,909,821 shares of common stock representing
approximately $10.7 million of the approximately $11 million invested in the
June Private Placement elected to rescind the June Private Placement. In doing
so, each of these investors returned to the Company its stock certificate

                                       11





<PAGE>

representing the number of shares and the warrant that it received in the June
Private Placement for cancellation. Immediately thereafter, these same investors
entered into the Senior Note Purchase Agreement whereby the Company issued to
such investors the Senior Notes convertible at $0.25 per share into common stock
in principal amounts equal to the amounts such investors invested in the June
Private Placement.

         After giving effect to both transactions, the Company issued 880,714
shares of common stock, warrants to purchase 660,536 shares of common stock
remained outstanding from the June Private Placement, and the Company issued
Senior Notes in an aggregate principal amount of approximately $10.7 million.

         The Company recorded a beneficial conversion feature charge of $2.2
million (included in interest expense) for the three months ended September 30,
2004, based on the difference between the $0.25 conversion rate of the Senior
Notes and the closing price of $0.30 of the Company's common stock on September
24, 2004.

         The Senior Notes are due the earlier of March 24, 2006, or an event of
default (as defined). The Senior Notes can be converted at anytime prior to the
maturity date at the conversion price of $0.25. Due to certain restrictive
covenants, including, without limitation, a covenant that the Company maintain
at least $5.5 million in cash or cash equivalents on hand at all times while the
Senior Notes are outstanding, the Senior Notes may become current prior to June
30, 2005. Based on these covenants, the Company has recorded the Senior Notes
and the accrued interest on such notes as current.

ASTRAL LIABILITIES
------------------

         In December 2002, we entered into an exclusive license agreement with
Mixture Sciences, Inc. ("Mixture Sciences") for Mixture Sciences to acquire all
rights to a proprietary immunotherapy platform technology developed by Astral.
Mixture Sciences provided financing to support the overhead and salaries of key
employees involved with this technology for a secured position in the technology
subject to a royalty-bearing license. We had certain rights to repurchase the
technology by paying Mixture Sciences a break-up fee. In satisfaction of the
break-up fee, Astral assigned two Patent Cooperation Treaty ("PCT") applications
to Mixture Sciences. We recorded the funds received from Mixture Sciences
totaling $285,000 as license revenues during the year ended June 30, 2004. On
September 27, 2004, Astral and Mixture Sciences entered into an assignment
agreement whereby Mixture Sciences reassigned all rights to the proprietary
immunotherapy platform, including the PCT applications, back to Astral in
exchange for payments of $300,000 of cash and $420,000 of stock of either Astral
or Alliance. Upon the signing of the agreement the Company made the first cash
payment of $100,000 to Mixture Sciences and recorded the remaining cash payments
of $200,000 as accrued expenses on the Condensed Consolidated Balance Sheet at
September 30, 2004. The Company also recorded the stock due as long-term debt on
the Condensed Consolidated Balance Sheet at September 30, 2004.

OTHER COMMITMENTS
-----------------

         Pursuant to a settlement agreement with a former landlord, the Company
has a commitment to pay $420,000 over the next 12 months. Accordingly, Alliance
has made payments totaling $115,000 and has included the balance of the
compromised amount in current liabilities in the Condensed Consolidated Balance
Sheet at September 30, 2004.

5.  PREFERRED STOCK

         In May 2000, Alliance entered into a joint venture with Baxter and sold
500,000 shares of its Series F Preferred Stock for $20 million. Subsequently,
the Company sold 293,750 additional shares for $11.75 million. The shares are
convertible based on the following provisions: 1) at the option of Baxter on or
after May 19, 2004; 2) termination of the license agreement between Alliance and
PFC Therapeutics; 3) at the option of Baxter on or after the period of time in
which the price of Alliance's common stock is equal to or greater than $22 per

                                       12





<PAGE>

share ($110 per share based on a post-reverse split of 5:1); or 4) at the option
of Baxter upon a change of control at Alliance. The Series F Preferred Stock has
no annual dividend and is not entitled to any voting rights except as otherwise
required by law.

         The Series F Preferred Stock is convertible at the following conversion
rates: 1) if Alliance's common stock price averages $22 ($110 per share on a
post-reverse split basis) per share over a 20-day period through May 19, 2004,
the conversion price for the Series F Preferred Stock will be $22 per share
($110 per share on a post-reverse split basis); 2) if the license agreement
between Alliance and PFC Therapeutics is terminated, the conversion price will
not be less than $10 per share ($50 per share on a post reverse split basis); or
3) if the events discussed above do not occur, the conversion price will be
based on the market value of Alliance's common stock at the time of conversion,
subject to "Certain Limitations."

         "Certain Limitations" refers to the situation where if a conversion
event occurs or a conversion election is made and conversion of shares of Series
F Preferred Stock would result in the issuance by the Company of a number of
shares (the "Additional Shares") of its common stock greater than the "Issuance
Limit," then the Company need not issue the Additional Shares, unless it first
obtains shareholder approval of the issuance of the Additional Shares. "Issuance
Limit" means 9,389,477 shares (before the reverse stock split of 1:5) of common
stock (that is, 19.9% of the shares of common stock issuance and outstanding as
of May 16, 2000). If the Company does not obtain shareholder approval for the
issuance of the Additional Shares or in any event, does not, prior to the
expiration of 120 days after such conversion election, issue the Additional
Shares required to be issued as a result of such conversion event or conversion
election, the Company shall pay to each person entitled to receive such
Additional Shares an amount in cash equal to the aggregate market price of such
Additional Shares on the day that the conversion event occurred or the
conversion election was made. The market price for such day shall be the last
reported sales price on the principal exchange on which the common stock is
listed, or if it is not so listed, the Nasdaq National Market or, if it is not
so listed, on the over-the-counter market.

         In March 2004, Alliance terminated its license agreement with PFC
Therapeutics and therefore, the conversion price of the Series F Preferred Stock
to common stock is fixed at $50 per common share (post-reverse split of 5:1).
Based on this conversion price, the outstanding shares of Series F Preferred
Stock are convertible into 635,000 shares of common stock. The Company has
accounted for the Series F Preferred Stock as a component of stockholders'
equity.

                                       13





<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

PLAN OF OPERATION
-----------------

(References to years are to the Company's fiscal years ended June 30.)

         Since our inception in 1983, we have financed our operations primarily
through the sale of equity and debt securities, and we have applied
substantially all of our resources to research and development programs and to
clinical trials. We have incurred operating losses since inception and, as of
September 30, 2004, have an accumulated deficit of $482 million. We expect to
incur significant operating losses over at least the next few years as we
continue our research and product development efforts and attempt to
commercialize our products.

         Our revenues from operations have come primarily from collaborations
with corporate partners, including research and development, milestone and
royalty payments. Our expenses have consisted primarily of research and
development costs and administrative costs. To date, our revenues from the sale
of products have not been significant. We believe our future operating results
may be subject to quarterly fluctuations due to a variety of factors, including
the timing of future collaborations and the achievement of milestones under
collaborative agreements, whether and when new products are successfully
developed and introduced by us or our competitors, and market acceptance of
products under development.

FORWARD-LOOKING INFORMATION
---------------------------

         Except for historical information, the statements made herein and
elsewhere are forward-looking. The Company wishes to caution readers that these
statements are only predictions and that the Company's business is subject to
significant risks. The factors discussed herein and other important factors, in
some cases have affected, and in the future could affect, the Company's actual
results and could cause the Company's actual consolidated results for 2005, and
beyond, to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company. These risks include, but are
not limited to, the inability to obtain adequate financing for the Company's
development efforts; the inability to enter into collaborative relationships to
further develop and commercialize the Company's products; changes in any such
relationships, or the inability of any collaborative partner to adequately
commercialize any of the Company's products; the uncertainties associated with
the lengthy regulatory approval process, including uncertainties associated with
FDA decisions and timing on product development or approval; and the
uncertainties associated with obtaining and enforcing patents important to the
Company's business; and possible competition from other products. Furthermore,
even if the Company's products appear promising at an early stage of
development, they may not reach the market for a number of important reasons.
Such reasons include, but are not limited to, the possibilities that the
potential products will be found ineffective during clinical trials; failure to
receive necessary regulatory approvals; difficulties in manufacturing on a large
scale; failure to obtain market acceptance; and the inability to commercialize
because of proprietary rights of third parties. The research, development, and
market introduction of new products will require the application of considerable
technical and financial resources, while revenues generated from such products,
assuming they are developed successfully, may not be realized for several years.
Other material and unpredictable factors which could affect operating results
include, without limitation, the uncertainty of the timing of product approvals
and introductions and of sales growth; the ability to obtain necessary raw
materials at cost-effective prices or at all; the effect of possible technology
and/or other business acquisitions or transactions; and the increasing emphasis
on controlling healthcare costs and potential legislation or regulation of
healthcare pricing. Further cautionary information is contained in documents the
Company files with the Securities and Exchange Commission from time to time,
including the Company's most recently filed Annual Report on Form 10-KSB, and
you are encouraged to read the section entitled, "Risk Factors" included in the
Company's most recently filed Annual Report on Form 10-KSB.

                                       14





<PAGE>

RESEARCH AND DEVELOPMENT
------------------------

         For the three months ended September 30, 2004 and 2003, we incurred
research and development expenses of $145,000 and $84,000, respectively, for
OXYGENT, an intravascular oxygen carrier that we are developing to augment
oxygen delivery in surgical and other patients at risk of acute oxygen deficit.
Research and development costs to date for our oxygen-therapeutic product
candidates, including OXYGENT, total approximately $156 million. While difficult
to predict, we estimate that the completion of clinical trials for OXYGENT will
cost at least an additional $60 million. We do not anticipate that OXYGENT will
reach the market for at least a few years, if at all, and, because of the
numerous risks and uncertainties associated with product development efforts, we
are unable to predict the extent of any future expenditures or when material net
cash inflows from OXYGENT may commence, if at all.

         Astral, our wholly owned subsidiary, is engaged in the development of
immunoglobulins that are engineered to bear specific disease-associated
peptides. For the three months ended September 30, 2004 and 2003, Astral
incurred research and development expenses of $815,000, largely due to the
$720,000 expense of the assignment of intellectual property agreement with
Mixture Sciences, and $91,000, respectively. Astral's research and development
costs to date total approximately $12 million. Because of the numerous risks and
uncertainties associated with early-stage technology platform research efforts,
we are unable to estimate with any certainty the costs of continued development
of Astral's product candidates for commercialization. We do not anticipate that
any of Astral's early-stage product candidates will reach the market for at
least several years, if at all.

         In December 2002, we entered into an exclusive license agreement with
Mixture Sciences for Mixture Sciences to acquire all rights to a proprietary
immunotherapy platform technology developed by Astral. Mixture Sciences provided
financing to support the overhead and salaries of key employees involved with
this technology for a secured position in the technology subject to a
royalty-bearing license. We had certain rights to repurchase the technology by
paying Mixture Sciences a break-up fee. In satisfaction of the break-up fee,
Astral assigned two PCT applications to Mixture Sciences. We recorded the funds
received from Mixture Sciences totaling $285,000 as license revenues during the
year ended June 30, 2004. On September 27, 2004, Astral and Mixture Sciences
entered into an assignment agreement whereby Mixture Sciences reassigned all
rights to the proprietary immunotherapy platform, including the PCT
applications, back to Astral in exchange for payments of $300,000 of cash and
$420,000 of stock of either Astral or Alliance. Upon the signing of the
agreement the Company made the first cash payment of $100,000 to Mixture
Sciences and recorded the remaining cash payments of $200,000 as accrued
expenses on the Condensed Consolidated Balance Sheet at September 30, 2004. The
Company also recorded the stock due as long-term debt on the Condensed
Consolidated Balance Sheet at September 30, 2004.

RESULTS OF OPERATIONS
---------------------

THREE MONTHS ENDED SEPTEMBER 30, 2004 AS COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 2003

         For the three months ended September 30, 2004, we recorded a gain on
the disposition of the IMAGENT assets of $143,000, resulting from the recording
of payments from Imcor of $90,000 to fund our obligations, and the assumption by
Imcor of certain of our obligations and settlements with various vendors and
creditors of $53,000 during the period in connection with the IMAGENT asset sale
transaction. For the three months ended September 30, 2003, we recorded a gain
of $1.9 million resulting from the recording of payments of $262,000 from Imcor
and settlements with various vendors of $1.6 million during the period.

                                       15





<PAGE>

         Our revenue was $47,000 for the three months ended September 30, 2004,
compared to $17,000 for the three months ended September 30, 2003. This increase
is due to an increase in royalties received from sales other than IMAGENT.

         Research and development expenses increased by $785,000, or 449%, to
$960,000 for the three months ended September 30, 2004, compared to $175,000 for
the three months ended September 30, 2003. The increase in research and
development expenses was primarily due to the recording of the $720,000 expense
of the Mixture Sciences assignment agreement whereby Astral reacquired all
rights to certain intellectual property and an increase of $61,000 spent on
OXYGENT-related activities.

         General and administrative expenses increased by $510,000, or 401%, to
$637,000 for the three months ended September 30, 2004, compared to $127,000 for
the three months ended September 30, 2003. The increase in general and
administrative expenses was primarily due to a $367,000 increase in legal and
accounting fees related to the June Private Placement rescission activities,
including the registration of the stock underlying the Senior Notes. There was
also an increase in personnel, rent and travel costs.

         Investment income increased by approximately $27,000 to $31,000 for the
three months ended September 30, 2004, compared to $4,000 for the three months
ended September 30, 2003. The increase was primarily the result of higher cash
balances during the quarter because of the receipt of funds from the June
Private Placement.

         Interest expense was $2.2 million for the three months ended September
30, 2004, compared to $78,000 for the three months ended September 30, 2003. The
expense for the current period was primarily the result of the beneficial
conversion expense recorded in connection with the exchange of the Company's
common stock for the Senior Notes on September 24, 2004.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

         Since inception, we have funded our operations primarily through the
sale of equity securities, payments under our collaboration agreements and debt
financing. From inception to September 30, 2004, we had received $243 million in
net proceeds from sales of our equity securities, $258 million in payments from
collaboration agreements and $74.3 million in debt financing of which $35.6
million of such debt has been converted into equity and $23.3 million of such
debt has been retired through the restructuring of various agreements and the
issuance of warrants to purchase our common stock.

         At September 30, 2004, we had approximately $7.4 million in cash, cash
equivalents and investment securities compared to $8.4 million at June 30, 2004.
The decrease resulted primarily from net cash used in operations of $1.1
million, partially offset by $90,000 received from Imcor to fund payments to
vendors. At September 30, 2004, we had a net working capital deficit of $6.2
million, compared to net working capital of $5.9 million at June 30, 2004. Our
operations to date have consumed substantial amounts of cash and are expected to
continue to do so for the foreseeable future.

         Net cash used in operating activities totaled $1.1 million for the
three months ended September 30, 2004, compared to $653,000 for the three months
ended September 30, 2003. The increase in net cash used in operating activities
during the three months ended September 30, 2004 was primarily due to the
increase in general and administrative costs, primarily professional fees
resulting from the June Private Placement rescission, and the increase in
research and development costs related to Astral, primarily the $100,000 paid to
reacquire intellectual property

         Net cash provided by investing activities totaled $89,000 for the three
months ended September 30, 2004, primarily due to proceeds of $90,000 received
from Imcor to fund payments to vendors. Net cash provided by investing
activities totaled $262,000 for the three months ended September 30, 2003,
consisting of $262,000 cash proceeds from Imcor.

                                       16





<PAGE>

         At September 30, 2004, the following approximate debt obligations were
outstanding:

         (a) $1.4 million owed to various vendors, approximately $425,000 of
which is subject to settlements or reimbursements from Imcor;
         (b) $1.2 million in accrued expenses, primarily consisting of $788,000
in rent and related expenses, $200,000 to regain exclusive rights to certain
intellectual property, and $172,000 in payroll and related expenses;
         (c) Senior Notes in the amount of $11.2 million principal and $10,000
accrued interest;
         (d) $420,000 payable in Astral or Alliance stock in exchange for rights
to certain intellectual property;
         (e) $1.25 million in deferred royalty payments to be paid through
IMAGENT royalty earn-outs.

         On June 18, 2003, we sold all of our assets related to our IMAGENT
product to Imcor. To date, Imcor has issued $3.7 million of its common stock to
certain of our creditors and made cash payments to us in an approximate amount
of $1.6 million. In addition, Imcor has assumed or we have settled $20.4 million
in liabilities in full satisfaction of $25.7 million of the foregoing debt.
However, $425,000 of such debt is still outstanding and to be paid by Imcor or
settled in accordance with agreements with the various debt holders. If Imcor is
unable to make the necessary payments, these debt holders will have recourse
against us.

         Until we can generate significant continuing revenues, we expect to
satisfy our future cash needs through strategic collaborations, private or
public sales of our securities, debt financings or by licensing all or a portion
of our product candidates or technology. We cannot be certain that additional
funding will be available to us on acceptable terms, or at all. If funds are not
available, we may be required to delay, reduce the scope of, or eliminate one or
more of our research and development programs or our commercialization efforts.

         In June 2004, we completed the June Private Placement, which was
rescinded in September 2004 and replaced with the Senior Notes (as described in
Note 4). The net proceeds to us were approximately $10 million. We believe we
now have working capital to fund our operations for the next 15 months; however,
due to certain restrictive covenants, including, without limitation, a covenant
that the Company maintain at least $5.5 million in cash or cash equivalents on
hand at all times while the Senior Notes are outstanding, the Senior Notes may
become current prior to June 30, 2005. In this event the Company would have to
raise additional funds to repay the Senior Notes or renegotiate their terms.
Therefore, we are seeking additional collaborative research and development
relationships with suitable corporate partners for our products. Further,
additional equity or debt financing may be required to fund our ongoing
operations. Because adequate funds have not been available to us in the past, we
have already delayed our OXYGENT development efforts and have delayed, scaled
back, and/or eliminated one or more of our other product development programs.

         In April 2004, PFC Therapeutics and Il Yang, a leading South Korean
pharmaceutical research and development and marketing company, signed a
licensing, development and marketing agreement granting Il Yang exclusive rights
to promote, market, distribute and sell OXYGENT for any approved clinical use,
including all future approved uses, in South Korea. Under terms of the
agreement, PFC Therapeutics will be initially responsible for the commercial
supply of OXYGENT to Il Yang and will receive a royalty on OXYGENT sales
following commercialization. Il Yang will also make certain future payments on
the completion of various regulatory milestones for development in Europe and
the U.S.

         Also in April 2004, certain secured creditors that accepted an
ownership interest in PFC Therapeutics in satisfaction of Alliance's obligations
and liabilities to such creditors agreed to exchange their ownership interest in
PFC Therapeutics for warrants to purchase shares of Alliance's common stock.

                                       17





<PAGE>

WHERE YOU CAN FIND MORE INFORMATION
-----------------------------------

         We are subject to the informational requirements of the Securities
Exchange Act and must file reports, proxy statements and other information with
the SEC. The reports, information statements and other information we file with
the Commission can be inspected and copied at the Commission Public Reference
Room, 450 Fifth Street, N.W. Washington, D.C. 20549. You may obtain information
on the operation of the Public Reference Room by calling the SEC at (800)
SEC-0330. The Commission also maintains a Web site (http://www.sec.gov) that
contains reports, proxy, information statements and other information regarding
registrants, like us, which file electronically with the Commission.

         We were incorporated in New York in 1983. Our principal executive
offices are located at 6175 Lusk Boulevard, San Diego, California 92121, and our
telephone number is (858) 410-5200. Our Web site is under construction.

         Our common stock is traded on the OTCBB under the symbol "ALLP.OB".

CRITICAL ACCOUNTING POLICIES
----------------------------

         There were no significant changes in critical accounting policies or
estimates from those at June 30, 2004.

ITEM 3.  CONTROLS AND PROCEDURES

         Under the supervision and with the participation of our management,
including our Chief Executive Officer ("CEO") and Chief Financial Officer
("CFO"), we evaluated the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)
of the34Act) as of the end of the period covered by this report (the "Evaluation
Date"). Based upon that evaluation, the CEO and CFO concluded that, as of
September 30, 2004, our disclosure controls and procedures were effective in
timely alerting them to the material information relating to us (or our
consolidated subsidiaries) required to be included in our periodic filings with
the SEC.

                                       18





<PAGE>

PART II OTHER INFORMATION:

ITEM 1.  LEGAL PROCEEDINGS

         On July 2, 2003, Hub Properties Trust ("Hub") filed a lawsuit in the
Superior Court of the State of California for the County of San Diego against
us, Immune Complex Corporation, Immune Complex, LLC (collectively "Immune
Complex"), and other parties. The suit alleges that the defendants are liable to
Hub for damages stemming from Hub's inability to lease two properties due to
defendants' failure to timely deactivate the radiological materials licenses on
the properties. On August 21, 2003, Immune Complex filed its cross-complaint for
indemnity against us. We have filed a cross-complaint against Hub for damages.
In June of 2004, we deposited $1 million into a controlled bank account as
security for any liability we may incur as a result of the Hub litigation. If
Hub prevails in the litigation, it will be entitled to the funds in the
controlled account up to the amount of the judgment. If the judgment exceeds the
amount of money in the account, Hub may pursue other of our assets. If we
prevail or the judgment is less than $1 million then any money remaining in the
controlled account will be returned to us. Trial is currently scheduled for
January 2005. We believe that Hub's claims are without merit or subject to
defenses; however, we do not know if we will ultimately prevail or if the
outcome of the action will harm our business, financial position or results of
operations.

         On June 13, 2003, we jointly brought a patent infringement action with
Imcor against Amersham Health Inc., Amersham Health AS and Amersham Health plc
(collectively, "Amersham") in the U.S. District Court for the District of New
Jersey. The lawsuit alleges that through the sale of Amersham's OPTISON(R)
product, Amersham and its related entities infringe on seven patents acquired
from us by Imcor through its purchase of the IMAGENT assets. We and Imcor are
seeking damages and injunctive relief against Amersham. Amersham brought
counterclaims against us and our subsidiary Molecular Biosystems, Inc. ("MBI")
asserting breach of contract, breach of good faith and fair dealing, and
tortious interference with contractual relations. We believe that Amersham's
counterclaims are without merit; however, we do not know if we will ultimately
prevail or if the outcome of the action will harm our business, financial
position or results of operations.

         In December 2001, a lawsuit was filed against MBI in the U.S. District
Court for the Northern District of Illinois. The plaintiff in the action alleged
that MBI breached a license agreement and sought damages and a declaratory
judgment terminating the license agreement, and payment of fees and expenses. In
December 2003, the court entered a judgment in favor of MBI. On January 29,
2004, the court denied plaintiff's motion to amend the judgment. On February 25,
2004, the plaintiff appealed the court's judgment.

         On February 23, 2001, a lawsuit was filed against us and some of our
officers by two former shareholders of MBI purportedly on behalf of themselves
and others. On March 1, 2001 and March 19, 2001, two additional similar lawsuits
were filed by other former shareholders of MBI. The lawsuits, filed in the U.S.
District Court for the Southern District of New York, allege that our
registration statement filed in connection with the acquisition of MBI contains
misrepresentations and omissions of material facts in violation of certain
federal securities laws. In May 2001, the actions were consolidated. The
plaintiffs are seeking rescission or compensatory damages, payment of fees and
expenses, and further relief. In January 2002, the plaintiffs filed a second
amended complaint adding an additional securities claim against us and the named
officers. In August 2003, the court granted summary judgment as to certain
securities claims and dismissed the claims, and denied summary judgment as to
other securities claims. A trial date of January 10, 2005 has been set in the
lawsuit. We believe that the lawsuit is completely without merit; however, we do
not know if we will ultimately prevail or if the outcome of the action will harm
our business, financial position or results of operations.

                                       19

<PAGE>

ITEM 2.  CHANGES IN SECURITIES

         On September 24, 2004, investors holding 30,546,423 shares of common
stock and warrants to purchase 22,909,821 shares of common stock representing
approximately $10.7 million of the approximately $11 million invested in the
June Private Placement elected to rescind the June Private Placement. In doing
so, each of these investors returned to the Company its stock certificate
representing the number of shares and the warrant that it received in the June
Private Placement for cancellation. Immediately thereafter, these same investors
entered into the Senior Note Purchase Agreement whereby the Company issued to
such investors the Senior Notes in principal amounts equal to the amounts such
investors invested in the June Private Placement. The Senior Notes are generally
convertible into our common stock at any time at the election of the holder at a
conversion price of $0.25 per share.

         On November 20, 2003, PFC Therapeutics sold the PFC Note in the
principal amount of $500,000 to an investor. The investor also received a
warrant to purchase a number of units of ownership interests of PFC
Therapeutics. On September 24, 2004, the investor exchanged such warrant for
2,500,000 shares of common stock of the Company and the PFC Note for a Senior
Note in the principal amount of $500,000

         The offers, sales and issuances of these securities were deemed to be
exempt from registration under the Securities Act of 1933, as amended (the
"Securities Act") in reliance on Section 4(2) of the Securities Act and/or
Regulation D promulgated thereunder as transactions by the issuer not involving
a public offering. The recipients of the securities represented their intention
to acquire the securities for investment only and not with a view to or for sale
in connection with any distribution thereof and appropriate legends were affixed
to the share certificates or notes in such transactions. All recipients had
adequate access to information about us.

         Our ability to declare or pay a dividend on our capital stock is
restricted for so long as the Senior Notes remain outstanding.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         None.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None.

ITEM 5.  OTHER INFORMATION

         None.

                                       20





<PAGE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      INDEX TO EXHIBITS

      EXHIBIT                            DESCRIPTION
      -------                            -----------

         4.6      Form of Senior Convertible Promissory Note (incorporated by
                  reference to Exhibit 4.6 of the Company's Annual Report on
                  10-KSB for the fiscal year ended June 30, 2004).
         10.73    Rescission and Settlement Agreement dated September 21, 2004
                  by and among the Company and certain investors (incorporated
                  by reference to Exhibit 10.73 of the Company's Annual Report
                  on 10-KSB ior the fiscal year ended June 30, 2004).
         10.74    Senior Convertible Promissory Note Purchase Agreement dated
                  September 21, 2004 by and among the Company and certain
                  investors (incorporated by reference to Exhibit 10.74 of the
                  Company's Annual Report on 10-KSB for the fiscal year ended
                  June 30, 2004).
         10.75    Registration Rights Agreement dated September 21, 2004 by and
                  among the Company and certain investors (incorporated by
                  reference to Exhibit 10.75 of the Company's Annual Report on
                  10-KSB ior the fiscal year ended June 30, 2004).
         31.1     Certification of Chief Executive Officer and President,
                  pursuant to Securities Exchange Act rule 13a-14(a) and
                  15d-14(a) as adopted pursuant to Section 302 of the Sarbanes
                  Oxley Act of 2002. *
         31.2     Certification of Chief Executive Officer, pursuant to
                  Securities Exchange Act rule 13a-14(a) and 15d-14(a) as
                  adopted pursuant to Section 302 of the Sarbanes Oxley Act of
                  2002. *
         32.1     Statement of Chief Executive Officer under Section 906 of the
                  Sarbanes Oxley Act of 2002. (18 U.S.C. Section 1350). *
         32.2     Statement of Chief Executive Officer under Section 906 of the
                  Sarbanes Oxley Act of 2002. (18 U.S.C. Section 1350). *

----------------
* Filed Herewith.

(b)      REPORTS ON FORM 8-K.

         On July 15, 2004, the Company filed a Current Report on Form 8-K/A for
the purpose of refiling an exhibit that was originally filed as an exhibit to
the Company's Current Report on Form 8-K filed April 1, 2002 and for which
confidential treatment has been requested.

         On September 24, 2004, the Company filed a Current Report on Form 8-K
for the purpose of disclosing the entry into material definitive agreements
pursuant to Item 1.01 and the creation of a direct financial obligation under
Item 2.03 in connection with the issuance of the Senior Notes.

SIGNATURES
----------

         Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                    ALLIANCE PHARMACEUTICAL CORP.
                                    (Registrant)

Date:    November 9, 2004           By: /s/ Duane J. Roth
                                        ----------------------------------------
                                            Duane J. Roth
                                            Chairman and Chief Executive Officer

                                    By: /s/ Edward C. Hall
                                        ----------------------------------------
                                            Edward C. Hall
                                            Chief Financial Officer

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